Sunday, March 13, 2005

Gazing into a yawning chasm

In Booker’s second story in his column this week, he takes apart Nick Witney. This is the man who, as readers will recall, is the CEO of the European Defence Agency, a man who was rash enough to send a letter to the Sunday Telegraph last week, arguing with Booker's piece headed: "The rule of Brussels controls our arms", which was published in the Telegraph on 20 February.

Witney has denied Booker's claim that he is playing a key role in building up an "EU defence identity" separate from both Nato and the US, a denial that we comprehensively debunked on this Blog last week.

What is particularly disingenuous, Booker adds, is Witney's own claim in his letter that he is only concerned with co-ordinating defence procurement. Nowadays, it is precisely the nature of the armed forces' electronics and weapons systems that dictates who they can fight alongside.

At the centre of EU defence planning is the Future Rapid Effects System (FRES) which will create a family of vehicles and weapons systems co-ordinated through the EU's Galileo satellite programme. If the British Army is reorganised around FRES, as Mr Witney's former employer, the MoD wants, it will be equipped to fight alongside other EU forces, but not alongside the Americans.

FRES is a subject characterised by an almost total absence of debate. Booker is one of the very few journalists in the British media to write about it and, although defence hardware is not a riveting subject for everyone, it is important.

As well as having significant political implications, FRES is - as we have remarked in a previous posting, very expensive. The government is preparing to sink around £6 billion into buying the 900 vehicles comprising the FRES system, with an estimated budget for the total costs of ownership over the expected 30-year service life of almost £50 billion. That is a staggering £6.7 million average cost to buy each vehicle and an unbelievable life-time cost per vehicle – yes, each vehicle - of £55.5 million.

By coincidence, however, FRES also features in this week's The Business, in a story headed: "Tank deal manoeuvres BAE into pole position in US". The story largely concerns the recent purchase by BSE Systems of the US armoured vehicle manufacturer, United Defense Industries, which we reported on 8 March.

And while The Business is to be congratulated on running the story, it is clear from its content that its journalist, Tracey Boles, does not understand its implications.

She leads her report with the comment that "tanks are big business", noting that, "In the UK, an upcoming requirement for medium-sized armoured vehicles under a military programme called FRES will be worth at least £3bn." In America, she adds, "the sums being spent are higher: Washington is to invest $100bn in its land-based Future Combat Systems (FCS), its vision of an interlinked battlefield on which tanks are key."

It is with this in mind, Boles writes, that BAE Systems, Britain's largest defence contractor, last week agreed the $4.1bn cash takeover of United Defense Industries

She goes on to state that the proposed purchase killed two birds with one stone for BAE - it is in pole position to win work on the lucrative contracts and it may have achieved its longed-for aim of cracking America's defence market. Its relentless march is now well advanced. Once UDI is integrated, BAE could become the sixth largest US defence company and will be a prime contractor there. Previously it was a systems integrator rather than a platform builder.

Where Boles goes wrong is on two counts. Firstly, like many others, including the Conservative defence spokesman, Nicholas Soames, she makes the mistake of positioning FRES primarily as an armoured vehicle project. It is not. The project involves developing a fully integrated electronic system of intelligence gathering, communications, targeting and weapons delivery, and logistics, of which the armoured vehicles are but one – and the least expensive – component.

As with modern military combat aircraft, where the electronics amount to 60 percent or more of the total cost of each unit, so it is about to become with modern ground equipment. It is no surprise, therefore, that the prime contractor for the Future Combat System in the US is not a "platform builder" but the aerospace firm Boeing.

The second mistake is in assuming that, because BAE has bought into a US firm that will be involved in FCS, that necessarily puts it in a "pole position" to participate in the MoD FRES project. In fact, the two systems may be mutually incompatible, both on a technical and – more importantly – a political level.

This, Tracey Boles, now writing as "transport editor" could have picked up from her own story, also in this week's edition of the paper, headed: "Minister to placate US over EU move to lift China ban."

Here, Boles reports that the UK’s defence procurement minister Lord Bach is, this week, to attempt to limit the expected backlash from the United States if, as predicted, the EU lifts its embargo on arms sales to China.

She goes on to add that ministers are anxious that protectionist elements are gaining momentum in America, and that removing barriers to arms sales to China will trigger a backlash from the US. US government officials and Congress have said they will retaliate immediately against European companies if the ban is scrapped while their own stays in place. This could mean sanctions.

The key passage, though, comes next, where she writes:

The threat has seen British manufacturers voice their willingness to stick to the US restrictions. BAE Systems does not want to jeopardise its lucrative US position, which has taken years to build up, by pursuing military sales in China. British support for lifting the embargo could undermine UK efforts to obtain a longed-for waiver from US International Traffic in Arms Regulations (ITAR). Such a waiver is seen as a first step to lowering defence technology hurdles between the two countries…

If the EU embargo is lifted, however, the UK can kiss goodbye to any thought of the ITAR waiver. But it can also expect that the US will clamp down on technology transfer generally, to which effect BAE Systems is looking for a "carve-out", a deal that would exempt Britain from any US action.

But the price of that has already been declared: in return, BAE would undertake not export any important UK technology if the EU embargo on arms exports to China was scrapped.

Now, therein lies the rub. As Booker observed, the FRES system is edging towards being an EU project. Witney is certainly acting on the assumption that it will be and the writing is on the wall with the selection by the MoD of a German manufacturer to equip the British Army with a new transport fleet.

The US would, therefore, be reluctant to have one of its major FCS contractors also involved in the FRES project, so the price for BAE's participation in FCS may be its self-exclusion from FRES, leaving that contract to go to European manufacturers.

This creates the potential for a perverse – and dangerous - situation where the UK’s biggest defence contractor is so geared to the US market that it can no longer supply the British Armed Forces. They would then have to look to European companies to fulfil their needs.

The worst of it all is that, following the battle in Fallujah last year, US forces have learnt lessons that render obsolete some of the tactical assumptions on which FRES relies, before the system even gets off the ground. That will leave the UK ground forces saddled with expensive yet inadequate equipment.

Thus, to return to Booker's piece, with which we started this post, he concludes that "the real danger Britain now faces, through our breakneck integration with the EU's defence and procurement policy, is that our armed forces may soon be as effective as the Growth and Stability Pact. And that will be no joke at all." He is dead right – we are gazing into a yawning chasm.